Ameriprise Financial alleges a California-based competitor actively recruited away its financial advisers, then instructed those advisers to illegally take Ameriprise client information.
Ameriprise Financial lawsuit alleges competitor encouraged poached advisers to steal client data
Ameriprise is seeking damages, claiming LPL Financial caused “irreparable injury.”
The Minnesota Star Tribune
July 31, 2024 at 5:22PM
The Minneapolis-based financial services firm is seeking monetary relief through arbitration, and simultaneously filed a federal complaint in the U.S. District Court for the Southern District of California against San Diego-based LPL Financial. The federal suit seeks a permanent injunction against LPL. While it will affect timing of the arbitration, regardless of a court decision, the case will move to a hearing under the arbitration board of the Financial Industry Regulatory Authority, or FINRA.
According to court filings, Ameriprise alleges LPL encourages and instructs Ameriprise recruits to “harvest confidential client information from Ameriprise’s systems” and turn over that data shortly after joining LPL. Ameriprise said its competitor has in the past provided recruits with the tools and instructions to do so.
“One such tool is a ‘bulk upload spreadsheet,’ which LPL has encouraged Ameriprise recruits to fill with information that they are not otherwise allowed to retain, and bring that information to LPL for LPL’s benefit,” according to court documents.
Ameriprise stated LPL has added nearly 800 registered representatives so far this year, albeit a small percentage coming over from Ameriprise. “However, a large percentage of those registered representatives who have left Ameriprise to go to LPL have engaged in similar misconduct. Recently, Ameriprise has uncovered a pattern of continued misappropriation by LPL and the majority of these LPL recruits,” the documents read.
In a statement to the Star Tribune, LPL said: “Ameriprise’s actions are part of an ongoing effort to hinder competition in the financial services space and intimidate its advisors who might consider leaving to join another firm. As a steward of independence in our industry, LPL will vigorously defend itself against these claims and all of Ameriprise’s equally frivolous cases.”
LPL ended 2023 with $1.35 trillion in assets under management and $10 billion in revenue, according to its annual report. In 2023, Ameriprise Financial generated $15.4 billion in revenue with $1.36 trillion in assets under management.
Once a registered representative terminates their affiliation with a firm, the representative’s use of customer information for any purpose “without the customer’s express prior consent” is a violation of U.S. Securities and Exchange Commission regulations, Ameriprise argues in its suit. The company also states certain protocols allow representatives transferring from one firm to another to take only a list of the clients “for whom they are the registered representative of record,” along with limited contact information such as name, address, email and phone number.
Ameriprise alleges LPL encouraged departing advisers to take with them substantial client documents and confidential client information “well beyond that permitted under the protocol,” including Social Security numbers, account numbers, routing numbers, account values and funds available.
“The pattern of behavior conducted by LPL is both shocking and concerning,” Michael Taaffe, outside counsel for Ameriprise, said in a statement. “For years, LPL has flagrantly disregarded industry protocols in how it recruits financial advisors — and they have obtained and mishandled trade secrets and sensitive client data to which they are not entitled.”
Ameriprise claims it has sustained “irreparable injury.” It is asking the arbitration panel to force LPL to give up profits, bonuses and other forms of compensation related to the alleged misconduct and award Ameriprise punitive damages in an amount to be determined at the final hearing, as well as pre-judgment and post-judgment interest and attorneys’ fees.
“It is time for LPL to be held accountable for their reckless disregard for clients and advisors, and the fact that they have demonstrated zero semblance of care when handling the personal information of thousands of unsuspecting investors who are unaware that LPL allowed and encouraged its recruits to engage in this misconduct,” said Taaffe, a partner at Shumaker, Loop & Kendrick.
The average FINRA arbitration case closes in 15.7 months, per the authority’s website. Ameriprise is requesting the arbitration panel take place in San Diego, near LPL’s headquarters.
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